SOUTH AFRICAN REVENUE SERVICE
PRESS STATEMENT

2 MARCH 2004

OFFICIAL RATE OF INTEREST FOR PURPOSES OF DETERMINING A FRINGE BENEFIT

The fringe benefit provisions in the Seventh Schedule to the Income Tax Act, 1962 provide that a taxable fringe benefit arises where an employee obtains a loan from his or her employer in terms of which -

• no interest is payable; or
• interest is payable, but the interest is charged at a rate which is lower than the "official rate of interest", which is a rate specifically prescribed by the Minister of Finance for purposes of determining the value of this type of fringe benefit.

The fringe benefit is calculated as the difference between-

• the amount which would have been payable on the loan if interest was charged at the "official rate of interest" and
• the amount actually paid by the employee.

The "official rate of interest" is currently fixed at 9.5%. Following the decrease in the Reserve Bank repo rate in December 2003, the Minister of Finance approved that this ?official rate of interest? be reduced to 9% with effect from 1 March 2004.

EXAMPLE

An employer grants an employee an interest-free loan of R100 000.

The loan amount = R100 000

Interest equals = 0%

Taxable fringe benefit equals = 9% X R100 000 = R9 000

The amount of R9 000 will be added to the employee's other income such as salary, etc. in determining the taxpayer's tax liability.

The Government Notice giving effect to the decrease of the official rate of interest has been published in Gazette No. 26104 of 1 March 2004.

The government notice has also been published on the SARS website http://www.sars.gov.za and can be accessed under Legislation/Regulations and Government Notices/Income Tax/Regulations/Notices.

ISSUED BY THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE
PRETORIA